Bond Outlook
| The changes taking place in Egypt and other Arab countries generate concern – most notably about oil supplies – but also hope, in that their economies might take off in the way Indonesia’s did after its liberation from dictatorship. That hope is adding to the positive tone of Western financial markets, buoyed expanding manufacturing, movement towards improved governance in the euro zone, and growing household consumption in the USA. |
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| The details of the emerging European “pact for competitiveness” are unclear, but certainly include surveillance of national budgets, and a degree of “federalisation” of sovereign debt. Our own confidence appears justified that the debt crisis in the euro zone would ease in the short run, and be the subject of major revamping by 2013. Hence we feel long dated European periphery government bonds currently merit attention. |
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| The sting in our optimistic opening paragraph is in the last few words: “growing household consumption in the USA”. There is of course rejoicing that consumption has increased, bringing an expanded GDP number. However we continue to ask what has changed since before the crisis: the USA is still living beyond its means and debt is increasing at all levels of government and society at large. |